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I'm sorry if I ask too many questions. I'm trying to understand things I never paid attention to before.
Where does the FDIC get the money it uses when banks fail? I'm assuming the Treasury Department holds some kind of pot of money for the FDIC to pay out to failed bank customers when banks fail but how is that money replenished in that pot and how is the ceiling for the amount that's in that pot determined? How many banks would have to fail for the FDIC to run out of money to pay out and when the amount needed is more than what's in the FDIC pot, how is the priority determined as to who is paid and who isn't?
And then just a general question. Has anyone here collected money from the FDIC because your bank failed and what was the process like?
The money gets printed off by the Federal Reserve.
There was a story on 60 Minutes a few weeks ago that gave *a little information* on how these closures go. The lady that was in charge of this particular closure commented that the Fed would not let them run out of money. I don't remember her name but last time I was on their site there was a link to it.
See item 119. http://www.dewoody.net/money/ch7.html
What the worry is now is that the amounts charged to the banks to keep the pool fully funded will be passed on to the customers which will have a negative effect on boorowing from the bank. There is no danger of the FDIC going bankrupt as they can borrow money from the fed which has a printing machine. But , you can see a inflationary cycle starting here that may be hard to unravel or get passed like a virus to the business / retail areas.
The FDIC does not get any money from the FED. The FDIC's "pot of money" is money it collects from member banks. In order for a bank to offer FDIC insured deposits, it needs to conform to certain regulations and pay certain fees on its insured deposits. Under normal circumstances the money generated from fees is plenty to handle any banks that fail, but during financial crisis the money often runs out. It does not help that the FDIC reduced the amount it collected from some banks during this decade.
Anyhow, the FDIC is implicitly backed by the federal government and if its "pot of money" runs out (they have ~$10 billion left, started the crisis with ~$40 billion) they will get funds from the treasury, NOT the FED. During the savings and loan crisis the treasury had to bailout the FDIC, they've yet to give the FDIC any money this time around though.
When it comes to the amount of money involved, the current crisis has 70 times the asset dollars in failed banks compared to the Great Depression. Even when the figures are adjusted for inflation and population growth, the current crisis is still much larger in dollar terms. (lounsbury)
the toxic loans are still on the balance sheets of these banks.
in its quarterly report on the health of individual banks and the banking industry as a whole, Institutional Risk Analytics (IRA), a respected financial services organization, found that the stress levels among more than 7,500 FDIC-reporting banks nationwide had risen dramatically. For 1,575 of the banks, net incomes had turned negative due to decreased lending and less risk-taking.
Anyhow, the FDIC is implicitly backed by the federal government and if its "pot of money" runs out (they have ~$10 billion left, started the crisis with ~$40 billion) they will get funds from the treasury, NOT the FED. During the savings and loan crisis the treasury had to bailout the FDIC, they've yet to give the FDIC any money this time around though.
Do you have a link to some data on how much is left in their "pot of money"? All the data I've seen suggests that they're essentially bankrupt.
I doubt they will make it out of this crisis without money from the treasury though. But the same thing happened during the savings and loan crisis.
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